Impacts of ageing for developed economies

In my second blog on the Ditchley Foundation conference on the implications of ageing in developed economies I’ve digested the discussion on the consequences of ageing. (Read the first post here)

Healthcare

It was striking that the conversation was dominated by healthcare. We distinguished between ‘true’ age-related healthcare costs, associated with chronic conditions and long term care, as opposed to the costs of the last year of life, which arise whenever someone dies and may actually be higher for early death (when people are more likely to benefit from costly interventions).

There was agreement that ageing is not the main driver of health costs, with improving technology and rising expectations considerably more important.

Participants questioned whether US health spending was an unusual outlier, or the inevitable trajectory for other advanced economies. While American delegates tended to be fatalistic about health costs, participants from other countries pointed to their success in checking rising costs and maintaining health spending at a lower share of GDP (usually with better health outcomes, since healthcare only has a small impact on a society’s health).

The comparison with Canada is instructive: its age profile is similar, its health outcomes better, and, in 1970, it spent the same share of GDP on health as the US.  Today it spends far less on health (public spending is similar, but in Canada, as in the UK, this buys people near universal access with little need to top-up privately); and cost pressures are much lower (spending as a share of GDP is not projected to reach today’s US levels even by 2050).

This high variation between systems implies that there is considerable opportunity to contain the costs of ageing with the right policy choices.

However there was agreement that in most health systems key opportunities were being poorly grasped, especially the chance to transfer resources out of acute care to invest in preventive interventions.

Working longer

Ensuring that the length of working life keeps up with rising life expectancy is a critical issue for preserving economic growth and personal prosperity in ageing societies.

The Ditchley participants were divided between optimists and pessimists on labour market issues, usually on the basis of the economies with which they were most familiar.

The recent success in postponing average retirement ages in North America and Northern Europe was contrasted with the failure in much of the rest of Europe. Many argued there was now a well understood toolkit of labour market and pensions reforms which would extend working life. The pessimists worried that national political or cultural contexts meant they would be hard to implement or have less impact than desired.

Participants were also concerned about the implications for lower income groups, if average retirement ages rise quickly. There is a difficult balancing act to strike between protecting people unable to work in their 50s and 60s, usually because of disability, and ensuring that social security programmes do not encourage early exit from employment.

Equality

Concern about the implications of working longer for people with poor health was just one example of how the discussion repeatedly turned to the interaction between ageing and equality.

Participants warned against discussing any topic on the basis of ‘averages’, since there so much variation between social groups. This applies to life expectancy, morbidity, healthcare outcomes, experiences of work, and incomes in later life.

There was some disagreement as to whether inequality and low economic status has been exaggerated as a cause of poor outcomes (as opposed to a consequence) but no disputing the risks that high levels of inequality present when adapting to very long lives. Interestingly, this was one of the few points where pension systems were mentioned (they were surprisingly absent from the rest of the debate).

There were repeated discussions about equality between generations, with a minority raising familiar concerns that baby boomer cohorts will use their numerical weight to demand more resources or skew policy decisions in their favour (eg healthcare spending, delayed increases to age-related benefits, zoning restrictions on new housebuilding).

However, most participants talked about the strong bonds between generations and questioned whether either old or young would ever really tolerate the setting aside of the needs of other generations.

But there was concern that, in some political contexts, spending on public pensions and healthcare could ‘crowd out’ education, science and infrastructure (it was argued that this is less because of baby boomer power, and more because of fiscal policies, poor public management, and misaligned distribution of responsibilities between tiers of government).

Were it to happen, such ‘crowding out’ could be a long term threat to intergenerational solidarity since, in my view, the most important driver of long-term fairness and solidarity between age groups is the prospect of GDP and average earnings continuing to grow, so that each generation knows that it will in time be more prosperous than the last.

Politics and the state

The conversations, particularly those on healthcare and equality, kept returning to the role of politics and the state (indeed there was far too little discussion of private sector responses). There was the usual hand-wringing over the mis-alignment between 3-5 year electoral cycles and a long-term perspective.

This led to a light-hearted discussion as to whether parents with children or older people with a lifetime of experience were better equipped to push politicians to think long-term (probably, neither!) and who should be given extra votes as a consequence.

The more serious debate was on the future of fiscal policy as the population ages. Some participants saw moderate increases in the share of taxpayer funded activity as desirable, manageable and inevitable; others worried about the implications for wealth creation and productivity.

There was also speculation that ageing was being used as a Trojan Horse for neo-liberal small state arguments, which were in reality unrelated. There was a sense that the continued role of the state would be shaped as much by institutional contexts as politics.The critical issue is how effectively state institutions (above all healthcare) can achieve efficiency gains and act as effective and fair gatekeepers of resources.

I concluded my report to the conference by remarking that everyone present accepted that pension transfers and age-related economic activity must rise as a consequence of ageing; but it is for each democracy to decide the extent to which this should take place through taxpayer funded institutions or as a result of private activity.

The answer each nation arrives at will say a lot about how individualistic or collective they wish to remain as we become centenarian societies.

2 responses to “Impacts of ageing for developed economies

  1. Pingback: Trends in ageing for developed economies | Age UK Blog

  2. RE: Health Costs
    The suggestion that “ageing is not the main driver of health costs, with improving technology and rising expectations considerably more important” is a rather ageist argument.
    1. Older age is associated with increasing Chronic Disease related morbidity.
    2. More old people means more chronic disease to be dealt with
    3. There is a cohort effect, as you suggest, that the “baby boomers” expect more.
    4. More older people with higher expectations is the result: The implication that the world could sustain more older people with low expectations brings out an ageist strand to this argument, not apparent at first sight!

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